Visium to Sell and Liquidate Funds After Insider Trading Charges

The firm will sell one of its funds to the money management firm AllianceBernstein and return money from its remaining three funds to investors, many of which are state pension funds, according to a letter sent to investors on Friday.

Two days earlier, federal authorities filed criminal and civil securities charges against three traders at the firm, including Sanjay Valvani, a top lieutenant to the founder. The charges included insider trading and mismarking securities.

Citing the government investigation, negative publicity and requests from investors to redeem their money, Jacob Gottlieb, the firm’s founder, told investors that “it became clear that maintaining the status quo was increasingly untenable for the firm.”

“I am obviously deeply saddened by these recent developments,” Mr. Gottlieb wrote in a letter to investors reviewed by The New York Times.

The announcement is a stunning and unexpected outcome from the investigation. It is rare for a hedge fund to shut down over a government investigation when the founder has not been accused of wrongdoing.

In March, Mr. Gottlieb informed investors that Visium was under investigation by the Justice Department and the Securities and Exchange Commission, adding that the firm would “work through this matter.”

The government’s insider trading case centers on a former Food and Drug Administration official, Gordon Johnston, who is accused of providing inside information about a generic drug approval process to Mr. Valvani, a portfolio manager for Visium’s Balanced fund. In all, Mr. Valvani is said to have made $32 million in illegal gains from tips Mr. Johnston provided.

Mr. Valvani then passed on some of those tips to Christopher Plaford, a former colleague, who used this information and other insider tips to garner illegal gains, according to the government.

Separately, Mr. Plaford and another Visium employee, Stefan Lumiere, who was formerly Mr. Gottlieb’s brother-in-law, have been accused of conspiring to inflate the value of the securities they were managing to charge investors higher fees. The government alleges that in all, the inflated prices led to $5.9 million in performance fees.

Both Mr. Johnston and Mr. Plaford have pleaded guilty.

Barry H. Berke, a lawyer representing Mr. Valvani, said his client was innocent. A lawyer for Mr. Lumiere has previously declined to comment on the case.

AllianceBernstein will acquire Visium’s Global Fund and its investment team in the deal announced on Friday. The terms for the fund and its investors are expected to remain the same, Mr. Gottlieb said.

The price of the deal was not disclosed. A spokesman for AllianceBernstein did not respond to requests for comment.

Visium will liquidate its Balanced fund, as well as its Equity Alpha and Institutional Partners funds. All requests for redemptions will be delayed, and money will be returned starting July 1, Mr. Gottlieb said.

Visium was founded in 2005 and has 170 employees based in New York, London and San Francisco. Mr. Gottlieb has a medical degree from New York University but turned to finance soon after graduating, starting as an analyst at Sanford C. Bernstein.

Some of Visium’s pension fund investors include the New Jersey State Investment Council, the School Employees Retirement System of Ohio and the Missouri State Employees’ Retirement System.